Oregon political leaders decided last year to create the health insurance exchange mandated under President Obama’s health care law. But they have since run into a series of hurdles which illustrate the difficulty of timely implementation, including a decision to tax health plans to fund the exchange after federal grant money runs out and the challenge of deciding which benefits will be mandatory under insurance plans.

President Obama’s law tasked each state with creating a health insurance exchange, a government controlled marketplace where individuals and small businesses can shop for health insurance coverage. If a state does not take steps toward operating its own exchange by 2014, the federal government has said it will establish one.

The business plan for Oregon’s exchange, HB 4164, is currently under consideration in the state legislature. Lawmakers established a public corporation last year to create the exchange, and decided to allow for up to a 5 percent tax on health care plans sold under the exchange in order to pay for it. The business plan assumes a tax of 2.5 percent in 2014 and 2.7 percent in 2015.

Who Should Pay?

Dr. Roger Stark, a physician and health care policy analyst at the Washington Policy Center, says Oregon’s challenges illustrate the tough decisions facing each state that decides to implement.

“As of January 2012, 15 states either have passed legislation or are about to pass bills to establish state exchanges, while 35 states haven't really done anything yet. The health care law says that the federal government will set up an exchange if the state won't, but the feds in no way are prepared to do this—at least right now,” he said.

Stark says Oregon’s decision to tax insurance plans is a method other states will consider.

“The states will be responsible for the cost of running the exchange. And I am not aware of any fallback position, short of the feds supplying more money. Of course, the federal government is as broke as the states,” said Stark.

Which Plans Will Qualify?

In December, the Obama administration announced states would have the responsibility to choose the benefits offered under the health care overhaul. Nine members of a public corporation that will oversee Oregon’s exchange will decide which plans qualify under federal guidelines.

Participating insurers must rate their plans—bronze for a minimum 60 percent of benefits, silver for 70 percent, gold for 80 percent, and platinum for 90 percent—and offer at least one "silver" and one "gold" plan. According to Stark, it’s unclear whether the federal government will approve every plan in every state exchange or if states will be able to offer not only the plans in Obama’s law but also plans with high deductibles and catastrophic coverage.

“My guess is that the feds will not have the time or manpower to approve or disapprove every plan. The feds could withhold the subsidies for the exchanges that don't comply, but that would be self-defeating as far as the goals of the health care law,” Stark explained.

Mandated Benefits and Rationing

Oregon legislators also have yet to decide on a minimum benefits package that insurance policies must cover in order to qualify for sale through the exchange. Stark says every medical specialty from acupuncture to vascular surgery is putting pressure on legislators to include their services in the package.

“As the benefits package grows, so will the cost of premiums,” Stark said.

Research shows each benefit or provider mandate adds, on average, 0.5 to 2 percent to every policy sold in a state, exacerbating the problem of rising costs, Stark notes.

“Health care costs are the real problem with our health care system, so the government will control those costs via rationing. And rationing will take the form of procedural denial based on age, or by limiting access with long waiting lines for treatment,” said Stark.

Coming Federal Takeover?

Devon Herrick, a senior fellow with the National Center for Policy Analysis, says he doesn’t believe the Obama administration will allow states flexibility on benefit packages for very long.

“Individual insurance policies tend to have fewer benefits because people buying insurance on their own quickly learn the tradeoff between comprehensive policies that are costly and high-deductible plans that are affordable. The problem is that the Department of Health and Human Services will ultimately determine the essential benefit package and it will be loaded down with mandated benefits that are unaffordable,” he said.

“Mandates increase the cost of coverage. Estimates are that up to one-quarter of the uninsured have been priced out of the market by mandated benefits,” added Herrick. “I expect the mandates to increase as special interests descend on state capitols to lobby for their respective diseases, conditions, and services to be covered by the mandate.”

GOP Legislators Reconsidering Support

Eric Fruits, president of Economics International Corp., an Oregon-based consulting firm, says after the last Oregon legislative session some Republican legislators took heat for going along with exchange implementation. He doesn’t believe they will be so willing to walk down that aisle this session.

“Right now the Oregon health insurance exchange is still up in the air. It’s not going as fast as supporters had hoped, in part because the federal government will build it anyway,” Fruits said.